Critical Issues Remain in Deterring Conflict Diamond Trade
GAO-02-678: Published: Jun 14, 2002. Publicly Released: Jun 14, 2002.
The United Nations (U.N.) General Assembly defines conflict diamonds as rough diamonds used by rebel movements to finance their military activities, including attempts to undermine or overthrow legitimate governments. The United States and much of the international community are trying to sever the link between conflict and diamonds while ensuring that no harm is done to the legitimate diamond industry, which is economically important in many countries. The principal international effort to address these objectives, known as the Kimberley Process, aims to develop and implement an international diamond certification scheme that will deter conflict diamonds from entering the legitimate market. The nature of diamonds and the operations of the international diamond industry create opportunities for illicit trade, including trade in conflict diamonds. Diamonds are mined in remote areas around the world and are virtually untraceable back to their original source once mixed and polished. The United States cannot detect diamonds that might come from conflict sources because the current diamond import control system does not require certification of the country of extraction. At present, there is no international system to certify the source of extraction. The Kimberley Process proposal for an international diamond certification scheme does not contain the elements necessary to provide reasonable assurance that the scheme will be effective in deterring the flow of conflict diamonds.
Recommendation for Executive Action
Status: Closed - Implemented
Comments: In June 2002 (International Trade: Critical Issues Remain in Deterring Conflict Diamond Trade, GAO-02-678), GAO recommended that the Secretary of State, in consultation with relevant government agencies, work with Kimberley Process participants toward incorporating better controls in the certification scheme, including a reasonable control environment, risk assessment, internal controls, information sharing, and monitoring. Since the November 5, 2002 adoption of the international certification for rough diamonds, the Kimberley Process Certification Scheme (KPCS), the Departments of State and the Treasury have co-chaired the Kimberley Process Implementation Coordinating Committee which is comprised of representatives of the Departments of Commerce, U.S. Trade Representative, and Homeland Security. The U.S. government has worked with other KPCS participant governments to ensure that KPCS structure for implementing the scheme encompasses key internal controls including working groups for 1) monitoring implementation by conducting peer reviews of participants and the process, 2) reporting statistical data on the production and trade of rough diamonds to identify anomalies, and 3) identifying solutions to technical problems for participants requiring technical assistance. Congress also enacted the Clean Diamond Trade Act (P.L. 108-19) on April 23, 2003, which defines the roles of U.S. agencies in implementing KPCS and requires annual reporting by the administration on KPCS' implementation, including key internal controls, and that GAO report on effectiveness of the provisions in the Act. In addition, State reported to Congress in 2004 that a number of implementation successes occurred, including improving the diamond statistical database, peer reviews of participant implementation, and strengthening of other key internal controls.
Recommendation: To help ensure that Kimberley Process participants, including the United States, achieve their goal to establish an international certification scheme for rough diamonds that will stem the flow of conflict diamonds while protecting the legitimate diamond industry, the Secretary of State, in consultation with the relevant government agencies, should work with Kimberley Process participants to develop better controls including a reasonable control environment, risk assessment, internal controls, information sharing, and monitoring.
Agency Affected: Department of State